Chandra J writes open letter to new CB Governor

Good governance activist Chandra Jayaratne has written an open letter to the new Central Bank Governor Dr. Indrajit Coomaraswamy regarding the ‘Regulatory Oversight Accountability over Government Bond Issues and Related Secondary Market Transactions’. The letter has been copied to the President, the Prime Minister, the Speaker, Leader of the Opposition, Minister of Finance, Minister of Justice, Monetary Board, Chairman SEC, The Auditor General, Attorney General, Chairman COPE, and Ceylon Chamber of Commerce as well as to the media. Here are excerpts:

Regulatory Oversight Accountability over Government Bond Issues and Related Secondary Market Transactions

You would no doubt agree, that effective and professional best practices embedded regulatory oversight over Government bond issues and related secondary market transactions, ensuring that engaged intermediaries duly discharge their professional commitments in line with best market practices, are an essential imperative of a well governed securities market in Sri Lanka. 

Such a governance framework is also an essential investor right, as endorsed by the Securities & Exchange Commission of Sri Lanka and the Chartered Financial Analysts Society of Sri Lanka. These rights need to be duly discharged through ensuring that; “all associated financial professionals and intermediary organisations are:

• Honest, competent, and ethical in conduct and complies with applicable law;
•  Independent and objective in advice and assistance, based on informed analysis, prudent judgment, and diligent effort;
•  Financial interests of the investor takes precedence over those of the professional and organisation;
• Fair in treatment in relation to other clients;
•  Disclosure of any existing or potential conflicts of interest in providing products or services;
• Understanding the clients’ circumstances and ensuring advice is based on clients’ financial objectives and constraints;
•  Clear, accurate, complete and timely communications;
• Fees and costs involved be transparent;
• Confidentiality of information assured;
• Complete supporting records are maintained

Whilst acknowledging that the Central Bank of Sri Lanka has competent professionals and infrastructure support to provide the oversight framework as set out above, recent controversial bond issues related experiences have clearly demonstrated that the Central Bank suffers from definite conflicts of interests, due its role in

• Being the primary issuer and manager of the Government Bond issues;
• Being the effective Manger and Portfolio Investor of the largest Securities market player in Sri Lanka – the Employees Provident Fund

In addition, it is commonly believed that the secondary market information data set maintained by the Central Bank is inadequate and incomplete for effective regulation of market and associated intermediaries. It is reported that the records maintained in the Central Bank, covering the secondary market transactions, fail to record the basic market data relevant to the prices at which the secondary market transactions have taken place.

In the light of above it is urged that the Monetary Board resolves to assign the role and responsibility to for regulatory oversight over Government bond issues and the related secondary market transactions to the Securities & Exchange Commission, at the earliest opportunity. 

You will note from the attached copies of correspondence with the Securities & Exchange Commission that the Securities & Exchange Commission, needs to make a minor amendment to its empowering enactment, to undertake this expanded role of supervision of the Government bond issues and associated secondary market.

I trust that you and the Monetary Board, will immediately begin negotiation with the Securities & Exchange Commission and the Government, for the formal transfer of the oversight responsibility over Government bond issues and associated secondary market dealings to the Securities & Exchange Commission.